Has Zuma lost battle for nuclear power? Rand strengthens as build with Russia put on ice

International investors clearly didn’t like the idea of South Africa pressing ahead with plans to build nuclear power plants with Russia. The rand strengthened on news that a new timeline has delayed the project, with the first nuclear power plant only set to become a feature on the South African landscape in 20 years’ time. Is the delay a way of helping President Jacob Zuma save face while also giving Russian counterparts some hope, albeit false, that the project will still go ahead? Many South Africans will be hoping so, as the nuclear build project – initially negotiated in secret – is believed to be so costly it could cripple the country for generations. At the very least, this delay buys time for South Africans hoping to eject Zuma and see a clean-up of projects involving the suspected abuse of state funds. Importantly, too, this decision comes after a storm of protest and political games that included a failed attempt to oust the country’s finance minister, Pravin Gordhan, on spurious crime charges. Gordhan has been a critic of the nuclear build programme. This shift in strategy looks like Gordhan has won this round in the battle and that Zuma’s influence may finally be on the wane. – Jackie Cameron

By Xola Potelwa

(Bloomberg) — The rand extended gains, strengthening the most among global currencies after the South African government said it would delay a plan to build new nuclear power plants, allaying concern that the cost of the program would strain fiscal targets.

The rand gained as much as 1.3 percent to 14.0535 to the dollar, the strongest in two weeks on a closing basis and the most among 31 major and emerging-market currencies tracked by Bloomberg. Yields on 10-year government bonds declined for a sixth day, down 5 basis points to 8.9 percent, the lowest on a closing basis since Nov. 9.

The new timeline, laid out in a report Tuesday, sees the first additional nuclear power plant coming on stream in 2037, compared with an earlier proposal of 2023. While President Jacob Zuma has championed the nuclear build program, estimated to cost from $37 billion to $100 billion, Finance Minister Pravin Gordhan has cautioned that new reactors may be not be affordable at a time when the economy is barely growing. Ratings companies are due to deliver reviews of South Africa’s creditworthiness, starting this week.

“That’s encouraging for the market because the cost is going to be pretty big,” said Nigel Rendell, senior emerging market analyst at Medley Global Advisors in London. “There really is no spare money to go down this route for the time being. There’s been disagreements between Zuma and the finance ministry about this, so it’s positive for the fiscal side and positive for the Treasury in general that they’re keeping a lid on spending.”

Moody’s Investors Service, which rates South Africa two level above investment grade, is publishing a review of the rating on Nov. 25, while S&P Global Ratings and Fitch Ratings, which both asses the country’s debt at the lowest investment level, are scheduled to release their assessments next month.

New Reactors

The cost of insuring South Africa’s debt against non-payment for five years using credit default swap contracts fell to the lowest since Nov. 10. By 11:39 a.m. in Johannesburg, the rand was 1.1 percent stronger at 14.0910. Against the euro, it advanced 0.9 percent to 14.9925, the strongest since Nov. 10.

“The timing of it comes just before the credit ratings agencies,” Rendell said. “Maybe that will help them, but I’m not sure it’s going to be enough.”

The government’s Integrated Resources Plan still calls for the construction of reactors, with a total 20,385 megawatts of nuclear energy added to the national grid by 2050. The government had previously wanted to generate 9,600 megawatts of energy from as many as eight reactors that would be completed by 2029.

“It’s been postponed so far down the line that by the time we get there nuclear energy might possibly be obsolete and not be a viable option anymore,” said Jana Van Deventer, an analyst at ETM Analytics in Johannesburg. “This latest development potentially means that any nuclear power deal is off the table for the time being.”